Economics Q105
0. A decrease in the price level would most likely shift the:
- Option : B
- Explanation : The LM curve represents the combinations of income and the interest rate at which the demand for real money balances equals the supply. For a given nominal money supply, a decrease in the price level implies an increase in the real money supply. To increase the demand for real money balances, either the interest must decrease or income must increase. Therefore, at each level of the interest rate, income (= expenditure) must increase — a rightward shift of the LM curve.
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